VC Perspectives from a Former Entrepreneur – Jeff Bussgang

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Don’t Forget the “Tech” in “AdTech”

Today's IPO by Tremor Video is seen by many as a harbinger for the adtech community (full disclosure: Tremor Video is a Flybridge portfolio company). Rightly so. Tremor is the first public offering of an adtech company since Millenial Media's IPO in April 2012. One can argue how successful the Tremor IPO was, and the broader industry implications, based on the first day's opening price and trading, but the real test of these offerings is what happens next – how companies perform and execute over the next few quarters.

One thing that is clear, though, is that the advertising community would be wise to keep an eye on the "tech" portion of "adtech". I have argued in the past that software is eating marketing. Simply put, technology is radically transforming the marketing function and the role of the marketing professional. The flow of advertising dollars into digital, addressable media is well-documented and well-understood. It is estimated that in 2013, $100 billion will be spent on digital forms of advertising, representing more than 20% of the total advertising market and continuing to grow rapidly in share (see chart above).

Less understood is that managing digital advertising is far more complex than its analog counterpart. Advertising agencies have retained their industry wide hegemony as a result of this complexity. With so many new technology vendors popping up and so many immature point solutions being deployed, the core competence of agencies has gone from being great at relationship managemnent to being great at technology platform management. As DataXu's Mike Baker likes to say, Mad Men have become Math Men.

But, in every industry, software improves and gets simpler and simpler. Technology platforms gain in scale, become more mainstream and training programs become more mature. As all this happens, agency services are required less and less.

So, the lesson that may get loss in the Tremor IPO hoopla? Agencies are being transformed. Technology companies are sweeping into the advertising industry, much like they did in marketing (see Salesforce.com, Eloqua/Oracle, Exact Target/SalesForce, Neolane/Adobe). And the days of getting the job done with thin technology in combination with armies of bodies are over. To be a valued, strategic player in the market, you had better have a thick, differentiated technology stack.